What competition do you face on the European spices and herbs market?
The power of buyers in Europe has traditionally been strong, but with increasing global scarcity and high prices, the power balance is slowly shifting to suppliers in countries of origin. High prices and growing scarcity will attract new suppliers over time. The expectation is that the European market for most spices and herbs will continue to grow. As a result, the European market will continue to provide opportunities for suppliers that are able to meet the high requirements for quality and food safety.
New entrants: hard to enter but easier to sell
The strict buyer requirements that suppliers must comply with (such as quality, food safety and traceability) form a serious barrier to enter the market. Market entry requirements are increasingly becoming stricter because of technological advances and food safety scandals. In addition, non-legal requirements imposed by European buyers are also getting stricter and require attention from suppliers.
- Stay abreast of market access requirements. For more information, refer to our study What requirements should my spices and herbs comply with? For specific information about standards on the European market, see ITC’s Standard Map.
- ITC’s Sustainable Spice Initiative Equivalency Tool compares various sustainability standards in Europe.
A growing sense of scarcity, increasing global demand and rising prices are changing the marketplace. Some buyers will focus more on whether their existing suppliers invest in increasing yields and improving quality. However, buyers will also be forced to look for other sources in order to secure and complement supply. They will have to be more flexible in price and payment terms, and they will encourage new entrants to access the market. This situation provides opportunities for new suppliers from existing origins and even from new origins.
- Develop a transparent export strategy. Be clear about your preferences such as longer-lasting relationships or selling for the highest price on spot markets. A long-term strategy offers the important advantage of stability, allowing you to build your business. This result can be reached by focusing on your most important buyers. One way of identifying them is by determining the 20% that is responsible for 80% of your turnover (the 80/20 rule).
- If you are unable to supply at least one container within your buyer’s short time frame, it is unlikely to be cost-effective for you to supply to the European market. If you come up short, you can try to work together with other suppliers interested in supplying to the European market.
New suppliers may originate from existing supplying countries or from other regions. There is still reluctance to source from many sub-Saharan African countries (except for South Africa) due to concerns about the political and economic environment as well as the level of professionalism. However, the extensive availability of land and the low wages will make Africa a more important supplier in coming years.
New suppliers should pay attention to the preferences expressed by European buyers. Requirements for quality, food safety and traceability are generally non-negotiable and are largely based on law. Sustainability is also increasingly demanded. For example, buyers might ask you to join their own sustainability scheme or to obtain a certain certification. In some cases, the preference for a particular origin is also added, which is related to taste profiles.
Spices and herbs from a specific origin often have a particular taste or colour. This aspect is relevant for pepper, vanilla and ginger, for example. It can be hard for buyers to switch to other origins, as this process could change the taste or colour of their product or that of their clients. In addition, business relations between suppliers and European buyers may go back several generations, creating a reluctance to switch. More often, an additional supplier will be included in the existing supplier range. As a new supplier, this option is often your best chance.
- Gain an idea of potential buyers’ preferences for origins and the reasons behind them. Giving your buyer safeguards such as certification and appropriate management systems to ensure traceability and food safety will dispel some of the reservations about switching. Refer to our studies for more information on the origins of imported spices and herbs.
- If you are new to the European market, it is recommended that you visit trade fairs and conferences to make business contacts. Food Ingredients Europe, SIAL and BioFach (organic) are important trade fairs. For other trade fairs, visit the website of EventsEye.
Substitutes: preference for a natural product reduces risk
There are several main sources of substitution for spices and herbs: synthetic, fresh and conserved products, as well as extracts of spices and herbs. The threat of other spices and herbs (such as ginger for pepper) is small.
Synthetic spices and herbs
Some spices and herbs, such as vanilla and cinnamon, are susceptible to substitution with synthetic flavour and colours. Substitution is only a real threat in the food processing industry, particularly at the lower end of the market. Important advantages are that synthetic substitutes are cheaper than spices and herbs, that there are no supply problems, and that they are uniform and have stable product properties compared to natural products. The threat of permanent or temporary substitution is especially relevant for expensive spices and herbs that are in short supply, such as vanilla. Most food processing companies will, however, stick to the natural product. A large and growing share of the market prefers the real thing, as it is considered healthier and tastes better. Many brands are committed to using non-artificial additives in their products. Changing to synthetic spice substitutes would mean changing their recipes, packaging and marketing.
- The higher end of the market is interesting to target for small and medium-sized enterprises that trade relatively small volumes. This segment has a strong preference for natural products and generally will only consider substitution when the supply of natural spices and herbs become constrained and prices increase.
- Manage expectations; be honest about your supply capability and inform your buyers immediately in the event of possible problems related to logistics and supply.
The threat of substitution for fresh products is mainly relevant for dried herbs (such as basil, thyme and parsley), but it can also be relevant for certain spices such as chillies and ginger. A large market segment is moving towards fresh products. In southern European countries, fresh products (especially herbs) are often preferred to dried ones and opportunities for dried products can be fewer.
There are various ways to conserve fresh products. The growing market for individually quick frozen (IQF) herbs and spices is an important development (for example, Herbafrost). IQF products combine freshness with convenience and improved shelf life. This is an important source of substitution for products that can be used fresh, but less so for tropical spices and herbs exported to Europe. The same applies to products conserved in other ways (such as different ways of freezing or spices and herbs in brine).
Spice and herb extracts can be an important source of substitution for suppliers to the food processing industry. They can be used to add flavour or colour to products. Producers of extracts can therefore be competitors as well as buyers of spices and herbs.
- Determine whether it is interesting to supply fresh, frozen or conserved spices and herbs. Be aware that this may require significant investment and a different approach. For example, fresh products will have different market access requirements (such as GlobalG.A.P.), logistics (such as controlled temperature transport and storage) and trade channels.
Spices and herbs that are important in European diets (such as pepper or sweet peppers) are less prone to substitution. New and exotic spices and herbs are increasingly used in Europe. They are, however, more sensitive to changing consumer trends than those used in traditional dishes. As a result, the risk of substitution is higher.
- Food trends in Europe are developing rapidly, so it is important to keep up to date. For more information, refer to our study of Trends on the market for spices and herbs.
Position on the market
Many changes in the competitive environment
The degree of rivalry on the market is generally high for uniform, whole products with low added value, such as the market for spices and herbs. This segment is often dominated by major suppliers able to deliver large quantities and to compete on price. It will be harder for small and medium-sized enterprises from developing countries to compete in these segments. For speciality spices and herbs traded in smaller volumes (such as specific varieties, high quality or sustainable), the degree of rivalry here is lower.
In the higher end of the market, there is more room for product differentiation. The focus is less on price and more on quality, taste, colour and/or sustainability. This segment generally provides good opportunities for small and medium-sized enterprises that can meet the strict demands on this market. For processed products (such as crushed, ground, blended and packaged spices and herbs), there is a lot of competition from European processors and major processors from large supplying countries (for example, Vietnam).
- To a certain extent, your competitive position can be predicted. For any commodity, the general market situation is a given, which will inform your negotiating position. Look for crop reports online or visit events where these reports are shared by sector exports. Refer to the crop reports by Jayanti and Nedspice to learn about the expectations for harvests worldwide and stock levels in consuming and producing countries. It can also be useful to develop harvesting calendars for your competitors worldwide. Use the following sources for inspiration and complement them with information from other sources: Nedspice, Spice Board India and Martin Spices.
- Exporters interested in supplying to the EU market should consider implementing sustainable practices in their business. This is becoming a selection criterion for many buyers. Having your company or product verified or certified for compliance with sustainable principles can open new markets. This involves investments in time and money, and it should only be considered if it fits with your company’s long-term strategy. Refer to our study of Sustainable spices and herbs in Europe for more information on the growing market for sustainable products.
- Try and differentiate your product to add value. You can do so by improving quality (improved cleanliness, other varieties or presentation). Another option is to customise your product (such as specific types of grinding).
- It is highly advisable first to be successful in supplying your domestic market with value-added products before considering the European market.
The degree of rivalry can differ per European region or market. Major European buyers, such as the Netherlands, Germany and the United Kingdom, import a large share of imports directly from countries of origin. Competition in these countries will come mainly from suppliers of other countries of origins. Other European countries will, to a large extent, rely on European traders for supply. This applies mainly to northern and eastern European countries. Competition in these countries will come from European suppliers as well.
Another thing that determines the degree of rivalry is whether you supply in bulk or consumer packs. Some countries such as the United Kingdom import a large share of crushed/ground spices and herbs in consumer packs from developing countries, mainly for ethnic markets. For the mainstream market, importers prefer to do their own processing (for example, Germany) or to rely on other European countries which are considered more reliable. The issue of reliability is becoming more important. Food fraud and adulteration are at the top of the agenda in the European spice sector. A growing share of spices and herbs, especially ground and crushed products that have been adulterated either intentionally (for example, with cheaper varieties, peanut shells or salt powder) or unintentionally (for example, by spillovers from chemicals such as fertilisers or pesticides, or by insects), were detected in the past year. In addition, reliability is an essential part of sustainable international trade.
- Perform your own statistical analysis to monitor your country’s trade with Europe or a specific Member State. For monitoring data on trade in specific spices and herbs within Europe, refer to our studies.
- Increasing your direct exports to countries that currently rely strongly on European countries might pose additional challenges. You could be asked to provide the same service as European buyers (short supply times, small orders, steam sterilisation, further processing, and so on).
- Adulteration can, in some cases, only be detected by specific testing. Such testing is expensive and not always interesting for buyers, who will only buy processed spices and herbs if they trust you. Building trust will take time, and requires you to act in a professional and transparent manner.
In January 2014, significant changes were made to the European Union’s Generalised System of Preferences (GSP). One relevant aspect for the spices and herbs market is that spices from China and Brazil will no longer benefit from preferential import tariffs. For many whole spices and herbs, the import tariff for all countries remains at 0%. For many products, this measure will not have an impact. For whole sweet pepper, vanilla, cloves and bay leaves, import tariffs are now higher for China and Brazil than for developing countries. This also applies to crushed/ground pepper, capsicums, vanilla, cloves, saffron, curry and thyme. For these products, the tariff depends on whether or not China and Brazil are suppliers.
It is also important to realise that can sometimes be difficult for European buyers to switch. They generally have specific requirements for taste, traceability, quality and food safety (in relation to pesticide residues, for example) that only few suppliers can meet. The recent changes in import tariffs can give suppliers which compete with China and Brazil an advantage. However, this relatively small price differential alone will often not be enough in order to motivate buyers to make the investments that are needed to support their search for other suppliers.
- Refer to the TARIC consultation database to check the import tariffs for your own or competitive countries.
Position in the supply chain
Buyer power: still significant but slowly decreasing
Most spices and herbs are imported to Europe by specialised European importers, who may either be traders or packers and blenders. The size of these buyers varies, with few large multinational companies such as McCormick and Olam, many medium-sized businesses with a national or regional focus (Verstegen, Fuchs, Euroma) and numerous small companies. Such importers sell to the food industry and retailers. These two categories are becoming more powerful and dominant in the chain because of consolidation. The size of their operations allows them to dictate prices as well as requirements for quality and food safety that go beyond legislation. Importers will pass on these requirements and conditions to their suppliers (for example, to you as an exporter). Buyer power is stronger on commodity markets (such as lowly and uniform products) than on specialty markets (for example, sustainable and high-quality products). There is less focus on price on specialty markets, but the type of outlet can differ as well. Products are often sold by smaller and less consolidated buyers.
- Keep up to date on prices. Commodity Online, Spices Board India and Public Ledger (paid service) publish up-to-date price information. The International Pepper Community and the Vietnamese Pepper Association provide prices specifically for pepper. An analysis of prices is often provided by market and crop reports, such as those published by Jayanti and Nedspice or public sources such as Business Standard.
In a global perspective, the power of European spice importers is decreasing, even if their requirements are becoming stricter. This development is mainly due to increasing scarcity on the world market, as a result of the increasing demand from emerging economies, which strengthens the position of exporters. For this reason, European importers find themselves squeezed between stronger exporters on the one hand and the increasing power and requirements of their suppliers on the other. Emerging markets (such as China, India and Brazil) that have less stringent buyer requirements and that are often located closer to producing countries are becoming more attractive for suppliers. European legislation will not become less stringent, so European importers may need to pay higher prices to keep suppliers interested in the European market.
- The European market remains interesting due to its size and the prices paid. However, local emerging markets can also provide excellent market opportunities. ITC’s Trade Map can provide you with interesting statistics on global trade.
- If you do not meet the strict quality requirements imposed on northern and western European markets, consider supplying to eastern European markets. The same legal requirements apply, but they will often accept lower-quality spices and herbs (lower oil percentage, dull colour or slightly damaged), and they may not always ask for additional guarantees such as food safety management systems.
Direct sourcing by European buyers is increasing in order to gain more control of their supply chain and to secure supply. This also involves new buyers and manufacturing industries that previously bought from importers. European buyers that have the resources are working more closely with suppliers and are even setting up their own facilities in countries of origin. Direct sourcing will become more common as global scarcity continues. For small and medium-sized enterprises in developing countries that are involved in trading and processing, this can either represent an opportunity to work together or a threat of being cut out of the supply chain.
Supplier power: low but improving
Spices and herbs have traditionally been grown mostly by smallholders with limited resources, storage capacity and adequate processing facilities. In addition, as most suppliers provide a uniform product, it is easy switch. For this reason, their power as suppliers against exporters has been small. Supplier power is increasing, however, as a result of scarcity and better access to real-time price information. In addition, suppliers have become more professional through investments in facilities that provide a better holding capacity and a better organisation. This development is noticeable, for example, among Vietnamese pepper farmers and traders who currently control the market. The reasons for their strong position are the size of their operations, holding capacity, strong cooperation with the local sector and competitive prices.
- With supplier power increasing, it is important to improve relationships with your farmers, collectors and other suppliers. Meet them in the field, order and pay on time, look out for interesting opportunities for them, and keep them up to date on your strategy and plans so they can anticipate them.
Increasing supplier power will lead to more cooperation between and integration of farmers, traders and processors in countries of origin. Cooperation and integration are important long-term survival strategies for traders and processors in countries of origin who might find their own position threatened by direct sourcing and backward integration from buyers in consuming countries. Some parties are even engaging in forward integration and taking over European companies to enter the market with their own products. Under the right conditions, these vertical integration strategies could also provide farmers with advantages such as increased security of prices and markets, as well as presenting opportunities for added value. By contrast, there are examples of suppliers in countries of origin that are strong enough to compete with these foreign companies.
- As a trader or processor, you can find yourself positioned between your own suppliers who are growing more powerful and buyers who are increasingly looking to secure supply. This changing dynamic can have a significant impact on your position within the supply chain. Assess your position in the supply chain and determine where you really are adding value or can add value in future.
- To improve your relationship with farmers, educate them on efficiency and agronomics. Training, particularly in the proper use of pesticides, fertilisers and sustainable agricultural practices, is important to improve yields and long-term profitability. Refer to the guidelines on Good Agricultural Practices for spices (IOSTA) and Good Manufacturing Practices for spices (IPC) for more information.
- To improve your relationship with your suppliers, it is recommended that you work with reliable collectors that have integrated sustainable practices (e.g. fair prices). If you are looking to gain more control over your supply chain, it is worth considering to set up your own collection stations.
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